The Indian government’s sale of a stake in Oil India Ltd., expected this month, could be the beginning of a flurry of equity sales in India, as both state-owned and private-sector companies move to sell shares to meet looming deadlines.

Faced with weak revenue and a rising budget deficit, the government hopes to raise as much as $5.5 billion selling equity in seven state companies before the end of March. Meanwhile, the founders of dozens of nonstate-owned listed companies are expected to sell several billion dollars of equity to comply with a new rule requiring them to reduce share holdings by June to a maximum of 75%, with the rest publicly held.

The rule also requires that at least 10% of listed state-owned companies must be in public hands by August. The Indian government issued the rule in 2010 with the goal of improving liquidity in stocks and reduce manipulation in the market.

This could further revive India’s stock markets, which began to attract renewed interest in the fourth quarter of last

year. New issuances tumbled in the second and third quarters as foreign and domestic investors shunned Indian stocks because of the nation’s slowing economy, new tax laws that would have hurt foreign investors, and the Indian government’s failure to implement economic overhauls.

When the government finally did introduce significant overhauls in the fall, including opening up sectors such aviation and retail to greater foreign investment, investors started to take another look. Sentiment improved again this month when the government partially lifted its diesel subsidy, a big drag on its finances.

In fact, while the benchmark Sensex rose 25% last year, half of the $24.4 billion that foreign investors poured into Indian stocks in 2012 came after the government introduced the first batch of revamps in September. An additional $2.4 billion in foreign capital has been invested already this year.

The Indian government is eager to take advantage of this new environment. It plans to offer a 10% stake in Oil India valued at about $600 million, 9.5% of power producer NTPC Ltd. for about $2.3 billion, and 9.33% of MMTC Ltd., India’s largest gold importer, for about $1 billion. “If the market momentum sustains, we can price these issues,” says Vinay Menon, head of equity capital markets at J.P. Morgan Chase in India.

This week, Indian Finance Minister P. Chidambaram is traveling to Singapore, Hong Kong and Europe to pitch the shares to foreign investors.

In general, bankers say the state-run companies will likely opt to conduct block sales on stock exchanges, which are faster to execute. “If you do a follow-on public offering, the market risk is higher,” Mr. Menon says.

If the government’s sales go off successfully, other companies are likely to follow suit, according to bankers.

In either case, companies that need to meet the rule for 25% minimum public ownership are likely to be next to sell equity. The Confederation of Indian Industry estimated last May that about 150 nonstate-owned companies would need to sell $4.4 billion of equity to do so. Technically, they can meet the requirement in other ways, such as delisting or issuing bonus or rights shares to existing shareholders. But many are expected to sell equity, partly because the other mechanisms can be tedious and require time-consuming regulatory approvals. Given the current buoyant stock market, selling stock may be faster.

Some have already sought the approval of their board of directors. Last week, Bangalore-based real-estate developer Prestige Estates Projects Ltd. said its board had approved the sale of as many as 47 million shares valued at about $150 million at their current price. Also last week Timken India Ltd., a unit of New York Stock Exchange-listed Timken Co., said its board had recently considered issuing up to 4.3 million shares valued at $15.5 million. The founders of both companies own about 80% of the shares.

Still, bankers say primary share sales aren’t likely to pick up significantly in the near future.

Gautam Gupte, director at Ambit Corporate Finance Pvt. in Mumbai, noted that only about two dozen companies have regulatory approval for an initial public offering, and most of them plan to raise less than $20 million. Even if a company applied now, it would take months to receive approval, he said.

Comments (1 of 1)

Thanks for reading Deal Journal. We would like to direct you to MoneyBeat, the Wall Street Journal’s brand new global blog. MoneyBeat unites MarketBeat, The Source, Overheard and all the Deal Journal blogs, bringing together all the market, M&A, IPO and hedge-fund news from those blogs into a 24-hour hub for finance news. Check it out and let us know what you think at moneyblog@wsj.com.

About Deal Journal

Deal Journal is an up-to-the-minute take on the deals and deal makers that shape the landscape of Wall Street, including mergers and acquisitions, capital-raising, private equity and bankruptcy. In short, wherever money changes hands. Deal Journal is updated throughout each trading day with exclusive commentary, analysis, data, news flashes and profiles. The Wall Street Journal’s David Benoit is the lead writer, with contributions from other Journal reporters and editors. Send news items, comments and questions to deals@wsj.com.